The Enterprise System Spectator

Friday, January 28, 2005

On demand computing: the rebirth of service bureaus

Application service providers (ASP), which provide application software hosting, were supposed be the "next big thing" of the Internet boom. But, around 2001, ASPs fell into disfavor, along with all things dot-com.

But now that the hype is gone, ASPs are quietly gaining ground, mostly under the latest buzzword, "on demand computing." The latest evidence is that IBM is buying Corio, one of the major remaining independent ASPs. It's a small deal for IBM--the price tag was only $182 million. But it indicates that IBM, which spends a lot of time thinking about the future of IT, thinks that on demand computing is more than the latest marketing slogan.

Back to the futureWhether you refer to it as on demand computing, or the ASP model, it's really the return to a very old concept in business computing: service bureaus. Service bureaus started in the late 1950s when computers were very expensive and beyond the reach of all but the largest companies. So in order to expand the market and make computers available to smaller companies, the big computer vendors, such as IBM, Burroughs, Univac, and Control Data, set up service bureaus to sell computer time on a shared basis. In other words, time-sharing.

Today, businesses are faced with a problem that is the same--only different. The problem is not that computing hardware is too expensive--those prices have been dropping every year to the point the laptop I am using at this moment to write this article has more computing power than the IBM mainframe that I programmed twenty years ago. The problem today is that software packages, especially enterprise applications, such as ERP and CRM, are too expensive and too difficult to administer for small companies. Smaller companies might be able to afford the hardware, but most can't afford the IT staff and infrastructure that it takes to support a major enterprise application. Therefore, a service bureau, or time-sharing approach, needs to be applied, not to hardware but to software. We need service bureaus for software.

Service bureaus, time-sharing, ASPs, and on demand computing are pretty much all the same concept. The customer doesn't run the system, and may not even own the system. The vendor runs the system, and the customer pays for it as he uses it.

For IBM, on demand computing is the closing of a full circle. IBM was forced to abandon time-sharing as a business in 1973 when it settled an antitrust lawsuit by selling its Service Bureau Corporation subsidiary to Control Data Corporation (CDC). Now in offering application hosting, and buying Corio, it's fully back in the time-sharing business.

Software vendors offering on demand servicesAmong the major enterprise software vendors, Oracle has been particularly aggressive in promoting its ASP service, called "Oracle OnDemand," which allows small companies to deploy Oracle's entire E-Business Suite, with Oracle hosting the system in its own data center for a maximum of $150 per user per month. The customer still has to pay Oracle's software license fee, but the hosting service relieves the customer of having to provide the infrastructure and staff to support the system. Other major vendors, such as SAP, offer similar programs.

The CRM vendors in particular seem to be having the most success in promoting the ASP model. Vendors such as Salesforce.com have been gaining traction, as small companies and even some large companies find that the ASP model makes a lot more sense in supporting sales reps as they roam the field. Salesforce.com is a pure-play ASP system, designed specifically for the hosted model, and the monthly per-user charge, which starts at $65 per month, includes everything--there's no up-front software license fee. Faced with the success of Salesforce.com, CRM market leader Siebel last year acquired hosted CRM provider Upshot and is now offering it as its own Siebel CRM OnDemand, going head to head against Salesforce.com at a comparable $70 per user per month.

In addition to the Salesforce.com, there are other pure-play ASP systems. NetSuite, an ASP that built its own enterprise system offering from the ground up to take advantage of the ASP model, continues to expand its product footprint, and now offers complete ERP (NetERP) and CRM (NetCRM) functionality, on top of its accounting system formerly known as NetLedger. Unlike Oracle OnDemand, NetSuite does not require an upfront license purchase, but can be purchased simply on a per-user, per month, basis.

Advantages of on demand computingThe ASP model is a good fit for small companies that do not have the IT staff or infrastructure in-house to manage information systems. Implementation is typically quicker than with systems deployed in-house, and the in-house support requirements are fewer. The ASP is responsible for all necessary software upgrades and system maintenance. The ASP also relieves the customer of having to worry about IT infrastructure requirements, such as security, backups, and disaster recovery. The ASP model also makes good sense for systems that support employees that are frequently on the road--applications such as sales force automation, expense reporting, and field service support are proving to be good choices to deploy on a hosted basis.

My own consulting firm, Strativa, is a good example of a company that benefits from using an ASP. We use a professional services automation system on a hosted basis that takes care of all our CRM, time and expense tracking, and billing requirements. Even though we do technology consulting, we'd rather have our staff spend their time delivering consulting services than maintaining an internal information system. Therefore, the ASP model is perfect for us. For a flat monthly fee, it gives our consultants instant access to the system anywhere, any time, through a Web browser, and it requires zero internal technical staff.

There is one other application that is well suited to the on demand model, and that's e-commerce systems. Because such systems can experience sudden and huge variation in transaction volume, it makes sense to host such systems under an on demand model that can flex to provide the computing power needed to accommodate such spikes. For example, if you host your own Web storefront and you're selling a product that suddenly gets favorable press in the Wall Street, your sudden good fortune can bring down your Web storefront. Not a good thing for customer service. Similarly, few small companies can afford the IT security and recovery measures that need to be in place to provide secure e-commerce. Therefore, small and mid-sized companies ought to consider the on demand model for any Internet-based application that are critical to the business. Even larger companies should consider this approach.

Disadvantages of on demand computingWhere the ASP model does not make a lot of sense, however, is in large companies that have multiple systems that must be integrated with each other or with custom systems written internally. Someday, with widespread adoption of a service oriented architecture (SOA) by software vendors, it might become easier for customers to integrate in-house systems with ASP-hosted systems. But today, if you have a mix of systems from different vendors, or a combination of packages and custom software, it's better to locate such systems within the same corporate data center.

Update, Jan. 30. Darrell Miller has posted a long comment to this post, disagreeing with my view:

The problem is that we are trying to avoid the root cause and find a workaround solution. As you stated "enterprise applications, such as ERP and CRM, are too expensive and too difficult to administer for small companies". This is the problem that we should be attempting to fix. CRM apps and ERP apps should not be difficult to administer.

Thursday, January 27, 2005

MAPICS agrees to acquisition by Infor

The news has just hit the wire this morning. MAPICS has just signed a deal to be bought by Infor at $12.75 a share, up from the MAPICS close yesterday of 11.62.

Infor is on quite a roll, having made a number of acquisitions in the past year. The company already has done a number of deals in the past year or so, such as Agilisys, Infor, Lilly, IncoDev, daly.commerce, and Varial. The MAPICS acquisition adds three more major products: the original MAPICS for the IBM iSeries (formerly AS/400), Syteline (which MAPICS picked up from Symix), and MAPICS XE (formerly Pivotpoint). If I were Infor right now, I'd take break from its takeover spree and spend some time to rationalize these various systems and consolidate the portfolio.

Concerning the MAPICS takeover, I've been wondering what was up. Quite a few people seem to have known something was in the works, because for the past several days, I've been getting a surprising number of search engine hits on the keywords for "MAPICS" and "acquire."

Saturday, January 22, 2005

Benchmarking in buying and implementing enterprise systems

Management fads come and go, but one that seems to have lasting appeal is benchmarking: measuring your company's performance against others. Like former New York mayor Ed Koch, executives constantly like to ask, how am I doing?

Enterprise systems, such as ERP, CRM, and supply chain management, are largely sold on the basis of their promise to improve business performance. Therefore, it is no surprise that software vendors are using benchmarking as a way to determine where there are the greatest opportunities to improve a prospect's business performance and to establish credibility with top management.

Benchmarking in the system sales cycleTo show the extent to which the major software vendors use benchmarking as a sales tool, let me relate a recent experience. Last year, I began preliminary work with a large company that was considering purchase of a new ERP system. Before long, word hit the street that this company might be shopping for software, and several software vendors tried to get a foot in the door.

SAP and PeopleSoft were two of them, and I was surprised that, without any prior contact with this client, both vendors sent benchmarking reports that compared the financial performance of this company with others in the same industry. (Public financial metrics for this company were readily available, making it possible for the vendors to do this.) Both vendors also identified possible opportunities where this company could improve its financial performance by implementing SAP or PeopleSoft software.

Based on work we had already done for this client, I didn't feel that the vendor benchmarks were particularly relevant or useful. But the point is that both vendors saw benchmarking studies as a key part of their initial sales contact. Both vendors must find this approach to be effective, otherwise they wouldn't be using it so early in the sales cycle.

One mid-market vendor's approachUse of benchmarking in the sales cycle is not limited to larger vendors such as SAP and PeopleSoft (now Oracle). I interviewed several mid-tier vendors during the APICS International Conference last year, and I was surprised to find that at least one such vendor, MAPICS, uses the same approach, but with some interesting twists.

MAPICS's use of benchmarking is interesting for two reasons. First, it's free to anyone visiting the MAPICS web site. Several years ago, MAPICS purchased benchmarking data on 4,000 manufacturing companies, which it updates quarterly. It allows visitors to its web site to use this database to compare their performance against other companies of similar size and industry.

Second, if the prospect turns into a client, MAPICS uses the benchmarking data to set objectives for the implementation and configures MAPICS business intelligence reporting to measure how well the client actually achieved those objectives after the implementation. This holds the client, and MAPICS, accountable for delivering real business value.

In a follow up discussion with MAPICS VP Joe Marino, I asked what led MAPICS to the use of benchmarking in selling new systems. Joe said that in the late 1990s, with the rush to implement new systems for Y2K, many companies lost focus on the business value of new systems. MAPICS was already using an earlier version of its benchmarking tool at the end of the sales cycle, to plan implementation. But they realized that with the downturn in the tech sector, it would be helpful to introduce the benchmarking tool at the beginning of the sales cycle, while prospects are simply gathering information from vendors. Their experience showed that introducing benchmarking early in the sales cycle can help focus attention on the business value of the new system.

At Joe's invitation, I've been playing around with the benchmarking tool. After initial registration the tool asks you what industry you are in and asks you to fill in eight financial metrics and five operational metrics. From these 13 metrics, the tool then plots the performance of your company against the average performance for your industry and against the performance of the top 25% of the sample for each metric, which MAPICS uses to indicate world class performance. Performance is compared along seven so-called keys to success:

Speed time to market

Streamline outsourcing processes

Exceed customer expectations

Reduce lead times

Cut operations costs

Manage the global enterprise

Improve business performance visibility

The tool also provides a separate benchmark comparison of your company on a purely financial basis, against the average and 25th top percentile in your industry.

My overall assessment of the MAPICS benchmarking tool? I like the intention: getting companies to focus on what it is they want in terms of business value from new systems. I have some question about how the tool can go from 13 metrics to the seven "keys," but, again, I like the overall intent of the exercise. It's a good first step for someone that wants to start thinking about benchmarking business performance. Joe estimates that about half of new MAPICS sales involve use of the benchmarking tool, confirming that the approach is appealing to prospects.

Limitations of BenchmarkingAlthough benchmarking can be a useful exercise when planning for the implementation of an enterprise system, executives should understand the limitations of benchmarking and the danger of taking any benchmark at face value. Here are four errors that I see when companies attempt to do benchmarking:

Only considering financial performance. Because publicly held companies openly disclose financial statements, financial metrics are the easiest to benchmark. But financial performance is a lagging indicator. A key driver of strong financial performance is operational excellence. For example, if your company's gross margins are lower than the industry average, is it because your product quality is sub-standard, requiring you to sell at a lower price than your competitors, or because your raw material costs are higher, or some other reason? A more detailed analysis would be needed to determine the operational metrics that are key to your success and then to compare your performance on those metrics against others in your industry. Therefore, the best benchmarking study is one that combines both financial and operational metrics.

Not taking into account operational differences. For example, manufacturing companies that make to stock typically have much shorter customer delivery lead times than companies that make to order. If your company is "make to order," and the companies in the benchmark sample are largely "make to stock," it will appear that your delivery performance is sub-standard. But it won't be a meaningful comparison. The same problem occurs when comparing a company that outsources much of its manufacturing against a group of companies that do most of their manufacturing internally. Comparisons of inventory turnover in such situations will be meaningless.

Not understanding differences in strategy. For example, if your strategy is to compete on delivery lead time, allowing you to command a higher price, and the companies in the benchmark are largely competing on price, it will appear that your gross margin performance is superior to the benchmark. But the reality might be that your gross margins are still too low to make up for the sales that you lose on price. You'll never know that unless you understand more about the companies in the benchmarking sample.

Only comparing yourself to companies in the same industry. The problem here is that you may look good relative to other companies in your industry but be missing opportunities to achieve truly world class performance. For example, if you are an industrial manufacturer and you want to achieve world class performance in your customer call center, who do you want to compare yourself to? Other industrial manufacturers, or companies such as Lands End that are truly world class in call center management? Sometimes you need to look outside your own industry, or you'll simply become the "best house" in a bad neighborhood.

Benchmarking continues to hold great appeal to executives. Therefore, enterprise system vendors, such as SAP, Oracle, MAPICS, and others will continue to use benchmarking as a way to get the attention of prospects during the sales cycle. Companies should hold themselves and their vendors accountable for delivering business value, and benchmarking is a useful tool to do that. At the same time, companies should be aware of the limitations of benchmarking. Use benchmarking for focusing the implementation effort, but use it wisely.

Wednesday, January 19, 2005

SAP to provide maintenance for PeopleSoft products

In a strange twist to the Oracle/PeopleSoft drama, SAP has just acquired TomorrowNow, a third-party provider of annual maintenance and support services for PeopleSoft customers. SAP is touting this move as a way to provide companies "a safe passage away from the uncertainties" around Oracle's acquisition of PeopleSoft.

SAP says that it is focused on serving customers that run SAP's applications alongside those of PeopleSoft and the former J.D. Edwards, which PeopleSoft acquired. But SAP no doubt has its eye on transitioning those customers to SAP's offerings before Oracle can convert them to its next generation product, code-named Project Fusion. I'm sure that SAP will not object, either, if PeopleSoft customers in general approach TomorrowNow with the need for annual maintenance and support.

SAP's move shows how in the large company sector there are very few new deals to be won. The battle is now being fought over extending the footprint of each incumbent, taking away user seats from its competitors. SAP's move to buy a PeopleSoft service provider is a smart move.

Oracle to steer new customers away from PeopleSoft products

I was too conservative. Last month ago, I wrote, "...it would not surprise me if, soon after the PeopleSoft acquisition is complete, Oracle refuses to sell any new PeopleSoft deals on anything but Oracle's database."

As it turns out, Oracle is going to steer new deals away from PeopleSoft's product lines altogether. Oracle won't actually refuse to sell those products, but it won't make it easy to buy them. According to an eWeek article,

As for new sales, Oracle's existing suite will be the focus. If the customer should demand PeopleSoft, "we're happy to exchange our software for money" Ellison said. PeopleSoft prices will now be published, he said....

"Oracle's salesforce will try to persuade you, if you ask an Oracle salesperson what product should I buy, and you're a net new customer... we will recommend and push for E-Business suite," he said.

To be fair, Oracle reiterated its pledge to continue to provide support and enhancements for PeopleSoft products until 2013. Still, the fact that if you are a company looking for an ERP system, two good systems (PeopleSoft's and the former J.D. Edwards products that PeopleSoft acquired and continued to market) will no longer being actively marketed.

In the same meeting, Oracle announced a massive development effort, code named "Project Fusion" that will merge Oracle's three product lines into one. Interestingly, Oracle has put a former PeopleSoft executive, Jesper Andersen, in charge of the strategy group that will develop the product roadmap for Oracle's three product lines.

SAP apparently doesn't have a formal switch program, yet. But that hasn't stopped SAP from approaching PeopleSoft customers aggressively on a case-by-case basis. According to Computerworld, "...an SAP AG spokesman said that his company has reached out to PeopleSoft users ever since Oracle announced its intention to buy the firm in June 2003."

OpenMFG, a semi-open-source ERP vendor, has a different approach. Ned Lilly, CEO, wrote me last week pointing to his offer to PeopleSoft employees that are laid off by Oracle. He wants these "PeopleSoft refugees," as he calls them, will form consulting firms to rep OpenMFG.

Generally, I don't think any of these offers are going to get much traction, at least immediately, and I don't think Oracle is worried about them. Installed base customers are generally a conservative group, and I suspect most will take a wait-and-see approach with Oracle. Furthermore, if software professionals laid off by PeopleSoft want to form their own firms, they're more likely to do it in some way to support PeopleSoft's installed base.

Which brings me to my last point. One area that may get Oracle's attention is competitors that offer alternatives to Oracle's annual maintenance and support contracts. Several third party support firms, staffed with former PeopleSoft and JDE employees, are lining up to take annual maintenance fees away from Oracle. Firms such as Klee Associates and TomorrowNow offer annual maintenance and support at a price that is significantly less than what PeopleSoft used to offer. Inasmuch as PeopleSoft's maintenance revenue stream was one of the things that justified Oracle's sweetened offer, Oracle is probably not going to stand by and watch these customers depart. I'm no lawyer, but it wouldn't surprise me if Oracle launches some sort of legal attack against these firms, on whatever basis Oracle can come up with.

Update, Jan. 20. SAP has now formalized its switch program. SAP is offering 75% discounts to PeopleSoft customers who switch to SAP. See the Mercury News article for details. It is also offering reduced annual maintenance fees through its acquisition of PeopleSoft third-party support provider TomorrowNow. See my Jan. 20 post for details on SAP's TomorrowNow acquisition.

Saturday, January 15, 2005

SAP continues to expand footprint of Business One

SAP has announced the general availability of SAP Business One 2004, the latest version of its separate solution for small and mid-sized business. According to SAP's press release, There are new MRP capabilities, enhancements to the financial modules, and embedded CRM--something you don't always see in solutions targeting this market. This latest version shows that SAP intends to be a major player in a market where it is not normally considered a contender.

Interestingly, this latest version also shows that SAP is increasingly aligning itself with Microsoft. It is uses Microsoft Outlook as a key component, and it is using a direct interface to Microsoft Excel to provide business intelligence capabilities. The Excel integration uses technology that SAP recently picked up through its acquisition of a Norwegian firm, iLytix Systems AS.

The fact that SAP is aligning with Microsoft is another example of how major vendors can cooperate at one level and compete on another. Microsoft, of course, wants the small and mid-size market as its own, through its Microsoft Business Solutions group, which offers products such as Great Plains, Solomon, and Navision that often go head-to-head against SAP Business One.

In a short research note, Simon Bragg of ARC Advisory Group commented, "This demonstrates SAP's quiet determination to succeed amongst Tier 3 companies, particularly companies from $10 million to $70 million in revenues. Over the last couple of years, it has developed the reseller channels, and created partnerships, for instance with SoftBrands to enhance Business One's manufacturing capabilities. Also, announcing today that their total software revenues increased 10% in 2004, it has the resources to succeed. Competitors in this sector such as Infor, who in Germany claim a higher market share in this sector than SAP, will be concerned."

Friday, January 14, 2005

The ax begins to fall at PeopleSoft

The New Zealand Press Association confirmed 15 of PeopleSoft's 50 NZ staff have been let go and said there was a similar cleanout in Australia. News.com reported 200 jobs would be lost in the Asia Pacific region alone.

Yesterday, CNET reported that Oracle has been taking a rather insensitive approach to how it fires people:

Oracle appears to be adding insult to injury in its merger with PeopleSoft--taking the unusual step of notifying workers of their termination by sending pinks slips via express mail to their homes.

Shipments to thousands of PeopleSoft employees across the country are expected over the weekend, according to sources close to the company. Those spared pink slips will get packages too--containing new Oracle employment contracts....

"The view of most of the employees out there is that it's a really callous way to do it," said Joe Davis, chief executive of Coremetrics and a former group vice president at PeopleSoft who stays in touch with his former co-workers.

"They view it as just another in a series of steps where they feel like they're not being treated in a very humane way."

Because employees will be receiving pink slips by mail over the weekend we won't know the full impact until sometime next week. The number 6,000, or half of PeopleSoft's employee base, has been mentioned both by Ellison last year and more recently by several industry analysts. But whatever the final number turns out to be, so far, Oracle's approach does not bode well for it's stated goal of keeping the best of PeopleSoft's people on board. And that doesn't bode well for ongoing support of PeopleSoft's customers. Stay tuned.

Update, 2:45 p.m. According to news wires, Oracle is now saying that the cuts will hit 5000 employees, or 9% of the Oracle/PeopleSoft combined headcount. Oracle doesn't say it, but that's about 42% of PeopleSoft's headcount, if all the cuts fall on PeopleSoft. But there's no telling how many of the cuts were against Oracle headcount vs. PeopleSoft's.

Update, 5:05 p.m. The Denver Post is reporting on the impact of the layoffs among PeopleSoft employees of the former J.D. Edwards facilities. Estimates run from 100 to 1000 heads to roll.

Update, Jan. 15. This is turning into a case study on how NOT to do a layoff. The Los Angeles Times is reporting that Oracle is apparently stringing out the layoffs over a 10 day period.

Oracle created more uncertainty for PeopleSoft veterans by noting in an afternoon statement that although some employees would learn their fate Friday, many others would hear over the next 10 days — or even later. More commonly at big businesses, layoffs occur on a single day.

A 10-day layoff period "is just leaving the organization to go over it and over it, like a recurring nightmare," said outplacement expert John Challenger of Challenger, Gray & Christmas Inc. "Especially in a situation where there was such antagonism between the leaders, this almost seems vindictive."

Again, I say that if Oracle intends to keep the best and the brightest on board, this is not the way to do it. If PeopleSoft's support for customers suffers as a result of Oracle's mishandling of the layoffs, there could be a real danger of triggering PeopleSoft's Customer Assurance Program.

Wednesday, January 12, 2005

Oracle/PeopleSoft employees face Black Friday

Oracle says that job cuts resulting from the acquisition of PeopleSoft will be announced this Friday. Although both Oracle and PeopleSoft employees are "eligible" the cuts are expected to hit PeopleSoft folks the hardest.

An article in the local East Bay Business Times seems to have the best information. It quotes Jeff Embersits, an analyst with Shareholder Value Management in San Francisco, as expecting 6,000 to be terminated, or 11% of the combined firm's 53,805 employees, in the first round.

On the other hand, it has another source saying that only 2,500 will be cut, mostly from HR and administrative functions.

On the third hand, Richard Davis at Needham & Co. expects Oracle to cut up to 90% of PeopleSoft employees in administration, as well as 80% of PeopleSoft's salespeople, while keeping most of its research and development team. In light of Oracle's interest in maintaining PeopleSoft customer satisfaction, I think that would be a mistake.

SAP and Sybase are both reporting an increase in resumes arriving from PeopleSoft staffers.

Then there is the expected hit on employee morale:

One source said that the resulting morale is so poor that many employees were coming in late and leaving as early as 2 p.m. But another source inside the company said that the slackness was due more to the normal breather employees take at the end of the quarter.

Tuesday, January 11, 2005

Microsoft wants PeopleSoft customers but doesn't have much to offer

The ink is barely dry on the Oracle/PeopleSoft acquisition, and Microsoft is already trying to get PeopleSoft customers to jump ship. Microsoft is offering a 25% discount on its application software to PeopleSoft customers who convert.

Unfortunately, Microsoft doesn't have much to offer. It is pointing users of PeopleSoft's Enterprise (the original PeopleSoft product line) to Microsoft's Great Plains product, and it is urging users of PeopleSoft's Enterprise One and World products (the former JDE products) to consider Microsoft's Axapta product.

Anyone who has evaluated these products knows that there are significant functionality gaps between the PeopleSoft and Microsoft offerings. For example, the last time I looked, none of the Microsoft applications offer true multi-site functionality (i.e. the ability to plan and manage multiple separate inventory and production facilities on the same system instance). So this offer is a non-starter for many PeopleSoft customers.

So, why is Microsoft even making this offer? As I've pointed out in the past, the battle between Oracle, PeopleSoft, Microsoft, SAP, and IBM is not really about applications. It is about the technology stack that lies beneath the applications. Currently, many or most of the PeopleSoft Enterprise One customers are running over Microsoft infrastructure technology (MS SQL Server, over Windows NT/2000), and there is little doubt that Oracle would like to move those customers, ultimately, to its own technology stack (Oracle database and tools, over Unix or Linux). So, Microsoft has to do something, but only has its small and mid-tier applications to offer.

The battle for the infrastructure stack explains why, after Oracle made its initial bid for PeopleSoft, Microsoft approached SAP for a merger. Microsoft knew that it didn't have a product to compete with Oracle/PeopleSoft. The deal with SAP never materialized, so now Microsoft is stuck with this empty offer.

There's additional analysis in a CNET article. My favorite part is a quote at the end from AMR's Jim Shepherd, who says that the Microsoft offer "is barely worth the paper the press release was written on."

Monday, January 10, 2005

New blog on offshore outsourcing

I found a new blog yesterday, called "Offshore Software Development Liverpool: Thoughts." Most writers on offshoring come from the position of those that are threatened by the trend. But this writer, Tony Radford, is on the other side of the debate: he is the founder of Redland Software, an offshore software development firm in Romania, with offices in Liverpool, UK.

Interestingly, Tony is a Brit, not a Romanian. He tells the story of how he came to set up shop in Romania, while on a mission of mercy.

On my first trip to Romania (to assist on projects with orphans) I fell in love with the country. Perhaps it was the wonderful climate, or maybe the (mostly) friendly and generous people - who knows. Anyway I returned there several times and always enjoyed myself.

I decided that I wanted to have a good reason to stay working with Romania. I did some research into the IT industry in Romania and discovered that the IT guys there are very talented, hard working and well motivated. Also, the salaries are a lot lower than in the UK. So I decided to set up a software development company in Timisoara in western Romania.

It took a couple of years of hard work to get the software development team working well. For the first two years the business was run on a part-time basis. Now it is a full time activity for me. I formed Redland Software. 'Redland' has nothing to with Romania being a former Communist country (as in 'red' 'land') but is in fact the name of a nice district of my home town of Bristol.

Saturday, January 08, 2005

Hope and fear in the IT job market

An article in Datamation points out that although the IT job market appears to be improving, there's still a lot of uncertainty among IT professionals.

"From one day to the next, you didn't know if they were going to come in and drop the bomb on you or the guy next to you," says an IT professional at an $8 billion company based in the mid-West. "I guess things are getting a little better. There are more jobs out there now... but I'm nervous. I'm still insecure."

There is little doubt that, overall, the economy is improving, leading to better IT job prospects generally. But mergers, acquisitions, restructuring of positions, layoffs, and offshoring initiatives at individual firms still give IT professionals plenty of reasons polish their resumes.

The Hudson Employment Index, which measures worker confidence, fell 1.3 points this past December to 103.6, its lowest reading of 2004. Key contributing factors included a drop in worker ratings of personal finances and increased expectations of staff cuts. However, the Index has risen 3.6 points year over year, reflecting an overall improvement in worker outlook compared to December 2003.

The Hudson report also studies four other sectors: accounting, finance, healthcare and manufacturing. The report shows that IT was the least stable of all sectors studied, posting both the highest reading of worker confidence, along with the most dramatic stumbles. Hudson analysts attribute the wild fluctuations to the "volatile and unpredictable" outlook on the job market and employment issues.

Datamation has more on the current state of careers and job hunting in IT.

Thursday, January 06, 2005

Lawson increases net loss, faces SEC investigation

Lawson Software continued its pattern of bad news yesterday. First, it announced Q2 results that are depressing: revenue of $83M (down 1.5% from the same quarter last year), license fees of $13.2M (down 23.6%), and a net loss of $3M, compared to a net loss of $1.3M a year ago. Only service revenues were up, 4.1%.

Second, Lawson said that the SEC has launched an "informal investigation" into its revenue recognition practices. In response, Lawson has already spent about $2.2M in fees and expenses to hire an independent accounting firm to investigate the situation--money that I'm sure customers would rather see spent on developing better software, rather than digging into Lawson's accounting practices.

Remarkably, CEO Jay Coughlan continues to blame Oracle for Lawson's financial problems. "Our license revenue came in as expected, given that the business environment during the entire quarter reflected the uncertainty of the Oracle/PeopleSoft merger," he said. I laughed when Coughlan tried out this excuse last quarter. Now, I'm concerned that he might actually believe it.

Lawson shares plunged over 11% in after hours trading, after the announcements. Over the past 3-4 months, Lawson has refused to say whether it could be the target of an acquisition. The latest news does not bode well for Lawson remaining an independent company.

Update, 6:35 p.m. Lawson's stock has recovered from the drop in after hours trading, finishing about even with the close yesterday. In addition, some analysts are upbeat about Lawson's prospects. According to CBS Marketwatch,

Lehman Brothers analyst Neil Herman said Lawson's pipeline for the current fiscal third quarter and the year looks good, adding that management was "more optimistic about business prospects than we have heard in quite some time"....

Herman also downplayed concerns about the SEC investigation, which centers on the company's revenue recognition practices, as Lawson has already completed an independent audit and found no major issues.

At Wells Fargo, analyst Eric Upin said he's still "very positive on the long-term picture for Lawson." ....

"We continue to see potential for further license growth, operating margin expansion, and, therefore, upside to our EPS projections, based on Lawson's market opportunity, strategy and new cost structure," he said.

Tuesday, January 04, 2005

Software package pricing to fall

Companies investing in new systems have grown accustomed to the fact that hardware prices keep dropping from year to year, while the prices for packaged software, at best, stay the same. As a result, software has been growing as a percent of corporate IT spending.

But maybe that's about to change. Meta Group is now predicting that, over the next 3-5 years, packaged software pricing will decrease for the first time in over a decade. The reasons? Meta points to the ability of companies to more easily develop (or contract to develop) their own software on top of infrastructure services from IBM, Microsoft, SAP, and Oracle; the alternative of open source software; the growth of third-party application service providers (ASPs), and the trend to cheaper offshore labor. (Each of these reasons is a subject onto itself, which I won't develop further for now.)

If Meta is correct, the trend toward vendor consolidation will continue as it simply becomes more difficult for vendors of packaged software to make money in this market. In fact, Meta predicts that the number of traditional software vendors will drop 35% by 2008, and another 15% by 2010.

"This shift has so many implications that it would be hard to overstate. We are not only seeing consolidation trends, but more importantly, we are beginning to see a burgeoning new software industry being germinated by IBM, SAP, and Microsoft that is cutting a swath through every layer of traditional IT. These events are redefining the economics of the technology market in some fundamental ways," said META Group Research Director, Dale Kutnick. "We are already seeing the major technology vendors positioning themselves and investing more aggressively in infrastructure and Web services, where they believe their products can support this more stable model, versus battling it out in the old packaged application software market. Many vendors are terrified and questioning what to do and where to go next."

All of this is good news for software buyers, who are finally in a stronger position at the negotiating table. Kutnick continues:

Traditionally, customers were beholden to their software vendors for the long term simply because alternatives were costly; ongoing maintenance and service support nearly guaranteed ongoing commitment to legacy vendor partners. This vendor "gravy train" is now in jeopardy due to emerging alternatives. As software becomes more interoperable and structured in a more flexible nature, customers can realistically threaten to bring their business elsewhere or explore to low-cost offshore alternatives if they are unhappy with their current vendor.

Meta's predictions match what I am seeing in deals lately. Vendors of packaged applications seem more reasonable in their pricing expectations, and more flexible in how they structure deals. Although there are fewer vendors than there were five years ago, there are still enough vendors to make every deal competitive, especially in the mid-market, and vendors are hungry. Furthermore, even though there is an overall trend to vendor consolidation, new vendors keep appearing, often with specific niche solutions in certain vertical industries that keep challenging the attempts of established vendor to hold the line on pricing.

Monday, January 03, 2005

PeopleSoft people await word on layoffs

According to an e-mail from Larry Ellison to PeopleSoft employees, Oracle plans to announce on January 14 who will be terminated. According to the East Bay Business Times, a local business journal, it appears that in the short term, Oracle may lay off fewer PeopleSoft employees than it originally indicated. But over the long term, the cuts could be deep.

"In the short run, I would say (Oracle officials) will be spending most of their time integrating the two companies," said Joy Bhadury, chairman of the management and finance department at Cal State Hayward's College of Business and Economics. "After saying early on he would fire almost everybody, Larry Ellison has done a 180 and promised he would keep the PeopleSoft staff intact for a period of time. But make no mistake, jobs will be gone. It's clear this is really not a merger, but a buyout. One army has indeed conquered the other. Eventually, PeopleSoft will be Oracle-ized."

Bhadury predicts that between 4,000 and 6,000 of PeopleSoft's 12,000 employees will be out of a job within a few years. Who is front and center on the chopping block?

"My feeling is PeopleSoft's senior management is gone," he said. "On the other hand, Oracle can't afford to lose the top people in all parts of the company. They do not want to lose high-performing salespeople, designers and product support personnel. Oracle will need to find the key people and keep them on board."

Where will the terminated employees land? I would expect to see some of the best picked up by other enterprise system vendors. It would not surprise me, also, to see some of them join technical services firms to provide services to the PeopleSoft installed base, or start new firms to do so. That could create some interesting competition in the market for PeopleSoft services.

I'm interested in hearing about best practices, lessons learned, horror stories, and case studies of success or failure.

Selecting a new enterprise system can be a difficult decision.
My consulting firm, Strativa, offers assistance that is independent and unbiased.
For information on how we can help your organization make and carry out these decisions, write to me.

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